The Present Ecomomy in India which is growing is fast becoming Capital Intensive as well. The growing cost of Infrastructure, Real Estate and other Expenses towards these is driving a lot of CFO's to their Excel Sheets and they are digging deeper then ever to find out cost cutting measures and have the best value for money extracted keeping in mind both the Capital Expense and the Operating Finance.

In the past, rental was not even part of an IT Managers or CFO's vocabulary. Owning IT and Fit Outs was the way to go and alternative options were never really mainstream. That, however, is all beginning to change, as companies gradually realize that owning assets that depreciate rapidly does not always make sound business sense.

Small and large companies alike are investigating rental as a viable option for setting up, or supplementing, an IT infrastructure.

Affordability centers around not having to invest that initial cash into equipment that rapidly depreciates over time, but rather opting for an affordable fixed-rental payment over a certain period. Cash is better used reinvesting in the business, he says. we can offer rental at rates below prime.

The RentWorks Rental Programme

RentWorks, India in origin, can do this because of its backend system, which Lewis says, is unique. When RentWorks has a transaction in which a customer want to rent, for example R1 million worth of equipment, RentWorks invests its own cash into the purchase of equipment, thereby lowering the customers rental payments. The true saving for the customer, says Lewis, comes when the customer returns the equipment after the rental period is over. The customer does not pay a residual at the end of the contract. The customer hands it back and walks away, he says. RentWorks then refurbishes it through its remarketing and refurbishing business unit, and then re-rents or sells the equipment to recoup the residual.

One of the reasons that companies opt for rental is because theyre finding that the cost of getting rid of technology is high, making rental an attractive option, Lewis adds saying that , in the past (companies) used to dump old equipment in a landfill site or donate it to charity, neither of which are really viable options anymore. Dumping is not environmentally friendly and donating is often difficult, because of the software run on the machines, which often cant do what the charity or school would need it to do, giving them more problems than are being solved. we take away the disposal problems that companies face, he says.

Predictability , the second benefit that Lewis identifies, is about budgeting. If you chooses a rental programme that includes fixed rental payment for the duration of the rental , you will know exactly what you will be paying each month, or each rental period. We can tell you exactly what youll pay for the next three years, says Lewis, which means that you can predict what your costs are. It offers stability and predictable cash flow.

Lastly, rental agreements offer flexibility that cash purchases cannot and, in the unpredictable and ever-changing world of IT, this is a plus. If you are going to spend cash and buy IT equipment and if something changes in the business in 18 months, cash doesnt suit your business needs anymore, says Lewis. Youll have to spend more cash to buy equipment that meets your needs. You are stuck with what youve got. RentWorks offers an Exchange Plan which allows you to swap portions of your installed fleet through your rental fleet. If, for example, you have rented R1 million of equipment, after 12 months you can swap approximately 30% without increasing your payment. You just lengthen your rental period on that new equipment. If you find that you have power uses who need more than just desktops you have rented, you can swap for the equipment that you need, he says. Another key factor is that you dont have to swap like for like you can swap IT equipment for office automation, or desktops or laptops.

Rental agreements can, thus help you keep competitive. Lewis says Business that rely on technology as a tool to maintain their competitive advantages recognize that each new generation of technology can recognize the opportunity to outperform competitors. Under these conditions, operating rental agreements becomes a highly-attractive solution, because companies benefit by using technology and not by owning it.

Of course, purchasing can also make sense in a business environment. If a piece of equipment can be expected to have a long life cycle, the chances are that it will eventually be free equipment, paid off and depreciated, at a lower long-term cost than renting the same equipment. the trick, of course, is identifying which equipment will survive long enough to provide that cosy state of affairs, says Goldstruck. Lewis says that it depends on the needs of the organization. Desktop PCs as well as notebooks are the most popular in the smaller server environment, he says.

Weighing up the Options

Rentworks offers the following comparison of rental versus purchase options for IT equipment.

	Cash Purchase	Rental
Equipment Value	The owner must accept any decrease in the value of the equipment.	All risk associated with equipment obsolescence and depreciation lies with the rental company.
Disposal of Equipment	The owner is responsible for the disposal of the equipment which has associated costs.	The rental company is responsible for the disposal of the equipment that is returned.
Ownership	All aspects of, and risks associated with ownership lie with the organisation.	All of the risks of ownership lie with the rental company, not the user.
Payments	Payment in advance.	Payments are fixed and spread over the useful life of the equipment.
Taxation	Owner may claim a tax deduction.	Rental Payments are fully tax deductible over the period of the rental term.
Effect On Balance Sheet	Appears as an asset on the balance sheet.	Off balance sheet and is seen as an operational expense.
Flexibility	No upgrade facility in place.	An upgrade facility is available at any time during the rental period.

Software Subscription Models

Hardware is not the only area in which companies can benefit from a system other than direct purchase. Software subscription models, such as those offered under Microsoft's new licensing model are becoming increasingly popular, as are alternative payment options.

Goldstruck is not convinced that this is, as yet, a cost effective answer. The situation becomes a little more complex and expensive in the software environment. Many large vendors, such as Microsoft and Oracle, have introduced licensing conditions that are, for all the world, like rental agreements except that upgrades often arent included, he says, explaining that, instead, users subscribe to the software, paying an annual license fee. This ensures annuity income for the vendor, and tighter control over the customers use of the product. Some licenses allow multi-year usage and include upgrade options, for an annual maintenance fee, he says. He cites Gartner (http://www.gartner.com/ research, which found that it was better value to buy perpetual licenses than subscriptions, since the likes of Microsoft charge rental fees of 85% of the cost of a perpetual license. Gartner research anticipates that the price point for rental models will come down, eventually, but that it will take five to six years for software vendors to move pure rental model, he says. Despite his uncertainty about its current value, Goldstruck sees the future possibilities. This future may well include modular software that allows the customer to pay only for what he uses, probably based on the ASP (Application Service Provider) model, in which the software is accessed via the internet or equivalent network.

A number of companies, other than Microsoft, are offering these types of options already. Siebel Systems (http://www.siebel.com/) is, currently, launching its CRM on Demand means no cost of software, hardware, or support costs, and no costs for upgrade. Instead, companies pay a fee of US$70 per user. It is perfect for companies that are not ready to host their own CRM systems or cannot afford the off-the-shelf options, says Peter Mbelengwa, director of Public Sector at Siebel Systems South Africa. Through this system, customers will handle their own customization in-house, without the need for consultants, or additional installation fees.

The offering seems set to compete with CRM (Customer Relationship Management) ASPs, which are becoming more popular. Mbelengwa says that CRM onDemand is a pre-packaged facility that really gives a small-to-medium sized business, or a company that is not ready yet, the ability to continue to expand its business through sales force management and analytics that are ready to use. todays businesses need to track sales leads, close their businesses on time, and be in a position to have the data in front of management for analysis, he says. He is also highlights the cost saving.

The move to this type of offering was prompted by market demand. Our customers are not in the business of IT, but in the business of business. They want a facility that helps them to drive their businesses, an enabler, says Mbelengwa.

What you need to know Before you make a Decision

So, there are a number of options available to the savvy business owner, but what should you know before you decide to rent? Lewis says that you should be aware of bundled rental products when it is difficult to determine what you are paying for hardware, maintenance, and rental, because when you want to get out of your contract it is difficult to identify what pays what. Rather choose a company that separates each of the items so that you can see what is making up the rental.

He also suggests avoiding agreements that have built in escalation in payment because that can become an expensive option. Rather opt for a fixed rental, or one linked at prime, so that at least you know that when prime moves it will affect you, he says. Beware of margin lenders that take your deal to the bank and make a 2% or 3% return on the deal. They are not adding value in terms of the product. It is not a true offering at all.

Jonty Collins, operations manager of SME-outsourcing specialist Netsurit, told Goldstruck that renters should try not to tie themselves into long-term contracts. Collins also advises finding a partner that includes upgrades as part of the agreement price, and not as an additional option, and that does not force you to resign, or lengthen your rental period, after the upgrade.

He says that the rental company should audit your existing systems and provide you with requirements based on what you are lacking, what you currently use the machines for and what you plan to use them for in the near future. They should also continue to manage this through the course of your relationship, thereby reducing the time you spend on managing your IT infrastructure.

"What you should be looking for", Lewis says, "is a fixed-payment rental for predictability. Im not saying a linked rental is not a good thing when rates are coming down but its risky. If you have not budgeted for changes, they can be expensive. With fixed rental, there are no nasty surprises, Lewis says. You should also look for a company that allows you to restructure and leverage off the product during the rental term, for example RentWorks exchange plan. Says Lewis: Make sure it is a true flexible option that does not incur penalties if you decide to change something.

Regardless of which option you chooses in hardware or software, make sure it is right for your needs. Perform your own internal audit of IT needs before making your choice and, especially, when deciding between renting or buying, discern whether or not the equipment will have a long shelf life. Renting can offer a host of benefits if you go into it with your eyes open.